Personal loans are seeing an uprise in popularity as of late and we can see why. Personal loans are perfect for most people because of the fact that it is essentially free money when you need it, excluding repayments, of course. When an unexpected expense arises or you need to make a purchase that is likely to far exceed your savings, you may need to take on significant debt to afford it.
If flexibility is your main concern above all, perhaps you may opt for a credit card or line of credit. However, if you are after a specific amount of money on a single time basis, it would make a lot of sense if you were to take out a personal loan for it which you will pay back on a monthly basis. You may have bad credit or worry about the debt you already have. Perhaps have other worries, but no matter what it is, this in-depth blog is here to help.
Personal loans are great, but you also have to consider the fact that sometimes you may not qualify. However, there are also other ways you may be able to get money now without breaking the law. Personal Money Store is a great resource for making money now and other personal finance subjects.
In this article, we are going to cover the types of personal loans you can find and some other subjects that may arise while searching for personal loans. So, without further ado, let’s get into it and gain a far better understanding of personal loans and all things involved. Let’s go!
What are personal loans used for?
There are plenty of uses for personal loans, in fact, if you can think of it, someone has probably taken out a loan for it! It is always preferable that you use them for important things such as major purchases and emergencies, but really, there are a variety of things they can be used for. They should be used mildly and if you are able to make the purchase by saving for it instead, that would definitely be in your best interest.
However, if you really need to find finance for some reason, a personal loan is quite honestly the best way to go because it will often come with lower interest rates and higher limits than your credit card would provide you with. There are some loans that have to be used a specific way such as auto loans or home loans, however, personal loans can be used for a plethora of things such as:
- Large purchases (home appliances etc)
- To consolidate higher debt such as credit cards or student loans
- Home repairs or improvements
- Medical procedures that may not be covered by insurance
- Vacations, weddings, or travel for funerals that you may not want to dig into your savings or save up for
The different types of personal loans
As previously stated, there are a plethora of different types of personal loans and we will outline them here so that you can gain a deeper understanding.
Secured personal loans
This is mainly for people that need a personal loan but also need some improvement done on their credit score. You may still be able to qualify for your personal loan; however, the lender may require that it is in the form of a secure loan. You may be wondering what a secured personal loan is, so let’s discuss that next.
A secured personal loan is a type of personal loan that requires you to provide an asset to guarantee the loan which may be in the form of savings, a vehicle, or a certificate of deposit. Luckily, the interest rate for secured loans is significantly lower than unsecured loans. This is because there is less risk provided to the lender since they are well within their rights to take your collateral if you cannot make repayments.
Unsecured personal loans
Most personal loans that people take out are unsecured personal loans. This means that there is no collateral required to be able to secure the loan. An unsecured personal loan means that you don’t have a type of collateral to back it up, which also means that if you cannot make repayments or are struggling to, there is no property that the lender will be able to take from you.
Instead of collateral, your solid credit history and a co-signer will be what backs it. The real negative comes when you cannot pay back your loan and it starts to make some significant dents in your credit score. If you fail to a hellish extent to make repayments, it all goes downhill from there and it goes rather quickly. In saying that, as long as repayments are made, you will likely be fine.
Fixed-rate personal loans
Personal loans are usually all fixed-rate. This basically means that the interest rate remains the same for the entire term of the personal loan and so does your monthly payment. The greatest benefit of this type of personal loan is that you know exactly what you’re paying, and no real changes can be made to that.
This also means that it is far easier to fit into your budget.
Adjustable-rate personal loans
Adjustable-rate personal loans aren’t as well known or as well-liked as fixed-rate personal loans or other options; however, some lenders still offer them. Instead of having the same interest rate over the term of your loan like you would with a fixed-rate loan, your interest rate will be subject to any change over time. The interest rate typically starts fairly low but has the opportunity to significantly raise over time.
This all depends on the market so from month to month, you could be paying wildly different amounts which can be a downside when trying to integrate it into a budget. There are usually caps that will be put in place to prevent you from paying a certain amount, however, you do also run the chance of getting stuck with higher monthly payments than usual. That could definitely become a nuisance over time.
